The US government's $19 trillion debt isn't a problem

That's a
huge, intimidating number on the face of it, but according to
Scott Brown of Raymond James, it's also not a serious issue.

"Just when you thought all the fear-mongering had subsided, the
national debt has resurfaced as a topic in this year's
presidential race," Brown said Monday in a note to clients.

"Yes, the deficit is large. No, it is not a problem."

In Brown's analysis there are two things happening when people
talk about the debt. On the one hand, they are concerned about
the current deficit, essentially the rolling
short-term additions to the debt. The increase in this, Brown
said, is simply a necessity of response to the latest recession.

"The federal budget deficit hit $1.4 trillion in FY09, or about
10% of nominal GDP," Brown wrote. "That is enormous, but it
simply reflected the magnitude of the Great Recession.

"Revenues fell. Recession-related spending (unemployment
insurance, fiscal stimulus) rose. As the economy recovered,
recession-related spending went away and tax receipts improved.
The deficit is now down to 2.5% of GDP, which is sustainable."

Raymond
James

On the other hand, people are also concerned about the long-term
amassed debt, that gnarly $19 trillion number. The issue with
this line of complaint, Brown said, is there is no nominal level
in which the whole thing comes crashing down.

"There is no magic level of debt that gets an economy in
trouble," Brown, the chief economist at Raymond James, said in
the note. "Research arguing that view has been discredited. The
federal government currently has no problem borrowing, nor is
there any evidence that it is crowding out private investment."

Brown posited a few solutions that could improve the situation,
though some he is less inclined to support. They are:

Cut entitlements: "Some now argue (I kid you
not) that we have to cut entitlements now so that we don't have
to cut them later (which makes no sense if you think about it
for more than a second)."

Raise revenues through tax increases: "Raising
revenues is tricky. Republicans aren't going to go along with
increases in tax rates (even if called "revenue enhancements,"
as they were during the Reagan years)."

Broaden the tax base: "Broadening the tax
base, as part of overall tax reform, could get bipartisan
support, but that means giving up certain tax breaks that some
will object to (that is, those benefiting from those tax
breaks)."

Raise effective corporate tax rates: "It's
true that the U.S. has one of the highest corporate tax rates
in the world, but the effective rate (what corporations
actually pay) is among the lowest."

This isn't to say $19 trillion
is a big number. But the US government is unlikely to descend
into total insolvency, and even before it would get there,
solutions are possible.